Costco done situps to get rid of Week Video I'm Dan Butler in new York and as a program from articles taking report today Friday December 12 this story stock.
Stock conveys of the stockroom club chain pot. Healthful than expected earnings report. But this being Wall Street and old adage always is critical. By the rumor sell the news selling was in fact subject material? pros did. Costco slid by the end each week losing all those gains back and more. So here to explain what's happening steep Cortes a fair crews LLC Steve thanks for being with us. So Costco had a very good quarter and our earnings beating estimates same stores sales jumping how things go about into the grow. Jack Cust Gaudin has encountered a law. A good industrial markets. The stock by methods had a superb year it's throwing a tough week at a tough day today. But it's had eight vibrant. 2014 I would say by the way just on a personal anecdote I think the reason Kosovo results are so good could be because of how much my wife spends at Costco. She is such irregulars are is now offering a case the slot there permanently available to her. So we're at the Cortez family we're big on big proponents and big customers of Costco but. Look past was been a black friday internet really well run company up for long time but there are several headwinds facing his company right now the biggest of them I think it's just increased competition price competition right now. He is serious if you peer at. The bond industry for its but automobile step outside a retail for second. Bob markets in general are telling us that we have. Little to no inflation out there inside and for that matter in other world that's not a great environment for retailers retailers like to have pricing power to build raise prices. It's extremely hard for retailers including Costco to raise prices on anything more right now. And competitors of course know that ended it'll only one in the retail world of the guerrilla. That I think is harming a lot of other folks including Costco is Amazon. And Amazon is so price depressing and it's such intense tournament situation for many retailers Costco included. That I think the future walk hostels Don well I mean it's gonna to be well I think the future prospects for the stock. Are getting a bit trickier so there was an analyst downgrade about Costco than a some variations those concerns just mentioned that did that go into that decision. Yes Joseph so that was vital downgrade today and so costs was getting hit fairly hard. On that downgrade but the prospect as a whole is having a bad day in a bad week. For that matter so it's not just costs will be yes due to the idea looking at the analyst report from Janney. They cite margin pressure meaning not that their their revenues are good but in conclusion profits on the prospect for those margins. Don't look quite so good give mentioned this was proceeds to rise. Costco has traditionally been mole C a US story it's only large that they started getting a little more global basically Wall Street has cheer data on. That external expansion but it's a two edged sword and in that report today Wall Street cautioned that the US dollar has been so strong that may well become a problem. For a major foreign operator like hospital because when they make money overseas in Canada in Mexican pesos. When they repatriate those companies then convert them in the states dollars. They're worth less that dollar's gain strengths of the dollar's black friday online shops gains are Kosovo's problems so. They sided margins which is what I'm most focused on but then currency as a potential headwind as well for Costco. You know you very rare issue Clinton wanted to ask you to dive somewhat more deeper into this because you know if he used to be in fact that what cost does make smarter might be. Is a Sam's Club or a different type of club chain that has been the biggest temperature sane Amazon is the number one threat and that there. How that is costs go from a trader standpoint get a bill to pay that bill to deal with that head on. Right one audit listen it's tougher for them. To be certain because when you talk about the big box retailers in Costco is when we talk about them I really think the biggest competitors are in fact. Amazon and Amazon has decimated some retailers right things like booksellers. Best buy electronics chains have been absolutely put bankrupt or some happened fact economists by Amazon I think now you're seeing them. First go after it could be that higher ticket items Amazon I mean. That are sold by somebody like Costco so what can they do they need to ascertain ways. To know the particular themselves I think they're they're doing that by the way I would say to just again on a personal note be in store experience that Costco is superb this country has great man company has great. Management and the've a culture that it seems to to really bleed down of the lower levels and support services is significant. And terrific very loyal customers the the advantages using of the factor to pay membership fees. Does generate a lot of loyalty whether their loyalties because like it or diseases following their pay check out where they were to put their money down and affect. Won't matter the idea is they have a Davis stickiness. Among their potential customers is expensive but you know speaking of are there ought to be that is that is. I'm very profitable but one thing I would I would mention too is regarding stock again I'm a fan of the company fan of the stores. Not a fan of the stock right here in one good reason is it's a high priced stock and the reason I say that Wall Street likes to evaluate stocks. While using price to earnings ratio I mean how much you spend in the stock price to capture. The income it's almost like if you look at a house Hummer what's the price per sq. ft. price to earnings ratio is is a similar metric. Before stock and costs go trades at a very pricey multiple. Even researching next year's earnings in paying more than twenty times. PE price earnings ratio that's very pricey that's well above the market as a whole it's certainly well about retailers normally you only see those kind of Loftier. Prices price earnings ratios for tech companies are people we're doing things are really life changing. 3 D printing Biotech things like that not for somebody who's he retailer while I think this is an excellent retailer. They're a business that is around for a heck of a long time as well as there's no barriers to entry here. The young and you're right EA you know and and that was there are good leader in this enlightening. Area in now this industry has the actual market but as you pointed out there. So MySpace against competition like Amazon and Sony doesn't challenge browse through the broader market knows it or ask the stock's trading lower today really for the week as well what's happening here. You know I think almost best black friday online sales by pointing out US and as it's a Costco. What formally was really just a US story Dave start to get much more global I think the main thing that's going on stock trading and shares right now is international worries. Europe was hit extremely hard this week added trash, dirt worried that knowledge as Europe not had inflation but they may very well have deep place. Opt basically net. Falling prices and you know some folks watching might see what's so bad about that i need it things for cheaper but it deeply Sheehan is can be a pernicious. Morality concerning economies Japan has been suffered from deflation for a couple of decades there are many fear in the market right now that is similar. A similar kind of outlook could be expanding. In Europe China is also slowing sufficiently. And why wall I think the US is reasonably strong and I think that may be the best economy of the major economies in the world right now. And we also have to learn that globalization. Is a two edged sword we can't just enjoy the use of globalization we models hinting one of the risks. That are joined would globalization so S 500 earnings almost half of the total revenue black friday 2015 boots of the S 500 companies. Emanates from overseas so the american is no island when it comes to the global economy and as matter of fact were do not take cooking player in that economy and so given that what happens overseas really matters to US investors and right now. Those on wall streeters saying let's let's sell first and ask questions later but there's there are many worry and I happen to share about the global scene. As we head into 2015 I think you'll find problems in Europe lot of problems in the. Pacific will do we can use it pacify those worries and concerns by seeking to cost what mrs. Script about Cortez over the past weekend giving us free sample hand us they have for that that they yes Sanford on a frozen food right.
Bet you heard right but not just appreciably dubbed by some until right whether that's very true that. No free email Steve Cortes from records he's that they have thanks so much love. This transcript has been perfect system generated and may not be 100% accurate.
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